ESG shareholder proposals records have already tumbled early in this proxy season, with the first majority support for a civil rights audit at Apple and the incredible 95 percent support for the plastic packaging proposal at Jack in the Box this month.
The 2022 proxy season looks set to be a blockbuster and the latest Proxy Preview report from the Sustainable Investments Institute (Si2), As You Sow and Proxy Impact confirms that.
The annual overview of the US proxy season ahead reports that this year has seen 529 shareholder ESG resolutions filed, up more than 20 percent from this time last year. A major driver of the increase in proposals is a 40 percent uptick in the number of shareholder proposals on racial justice.
This year sees over 40 resolutions being put to a broad range of companies. Last year, US financial giants, particularly banks, were a primary target and proposals drew significant support but fell just short of achieving majority backing. The first one to go to the vote at Apple this year, however, did, achieving 53 percent support – a sign that the issue could be an even bigger focus for investor in 2022.
A key difference between this proxy season and the last is the guidance put out by the US Securities and Exchange Commission (SEC) in November.
During the Trump Administration, rules governing the filing of proposals had been interpreted by the SEC in a way that allowed companies to exclude many of those on ESG issues, particularly emissions reduction targets, from going to the vote via the ‘no action’ process – whereby companies petition the SEC for permission to exclude proposals by appeals to rules governing the process.
But the latest intervention by the regulator, which has been transformed under the Biden Administration, tipped the balance of power back towards investors, bolstering their ability to challenge companies.
Si2 reports that so far, the SEC has only allowed 11 proposals to be omitted at the request of companies, however, 103 challenges remain to be decided.
The regulator’s November guidance was so clear that almost immediately after being published, US retail giant Costco abandoned its attempts to exclude a proposal calling on it to set science-based targets to reduce its greenhouse gas emissions.
That proposal went on to receive 70 percent support from shareholders in January – one of five to get more than 50 percent support this proxy season already. A record-breaking 39 ESG-orientated proposals received majority support last season, but that looks set to be a short-lived record.
Under the previous Administration, it was virtually impossible to get emissions reductions targets past the SEC. But, unsurprisingly, given the new disposition at the regulator, shareholders are now challenging companies like never before to set time-bound, science-based emissions reductions that cover their entire value chain.
Si2 reports that of the 101 proposals that touch on “carbon asset risk”, 68 address emissions, up from 29 at this point last year. More than two dozen ask companies specifically to adopt Net Zero emissions targets.
A sign of how the landscape has shifted in the US is that only one of the five oil giants hit with emission targets proposal from Dutch activist Follow This have attempted, unsuccessfully, to exclude it.
Until recently, it was standard practice to oppose climate proposals via the SEC, but this year just Occidental attempted it, unlike its peers Exxon Mobil, Chevron, ConocoPhillips and Phillips 66.
But, according to documents seen by RI, the SEC has rejected Occidental’s argument that it had substantially implemented the call to set Paris-aligned short-, medium- and long-term emissions reduction targets, covering direct and indirect emissions.
Another climate proposal that is gathering momentum, is one calling for companies to produce reports that are formally audited. Last year proposals at Chevron and Exxon Mobil, calling for audited reports on how their businesses would be affected by the IEA’s Net Zero 2050 scenario, received near majority support.
The proposal is back again this year at nine companies, including US banks Citigroup and Bank of America. Californian public pension fund CalSTRS has also filed one at utility giant Duke Energy.
“Shareholder proponents want specific plans for carbon neutrality, but they also see big problems with exposure to the rancorous social policies pursued by company-supported lawmakers, especially in statehouses,” said Heidi Welsh, executive director of Si2 and co-author of Proxy Preview 2022. “Gauzy promises clearly are not sufficient. With some companies releasing more details on diversity and environmental impacts, those that don’t really stand out.”
Investors pull proposal at HSBC following new climate commitments, including capital market activities
Moving to Europe, yesterday investors – including Candriam, Folksam and ACTIAM – pulled their shareholder proposal at HSBC, after the UK banking group ramped up its climate commitments, including pledging to update the scope of its fossil fuel targets to cover capital markets activities by the end of the year.
The bank received strong pushback over this omission when it published it climate targets last month. Research from campaign group ShareAction, which coordinated the proposal at the bank, found that 60 percent of HSBC’s financing to top upstream oil and gas companies is in the form of capital markets underwriting.
Last month, HSBC helped raise a $533 million bond for the Arabian Drilling Company, in addition to underwriting a $1billion bond for Mexican oil giant Pemex at the end of last year.
In its announcement yesterday, HSBC stated that it expected to publish emission targets for its capital market activities of the fossil fuel sector in the fourth quarter of 2022, “once the Partnership for Carbon Accounting Financials (PCAF) accounting standard for capital markets is published.”
HSBC also announced that it will “phase down” financing of fossil fuels in line with limiting global temperature rise to 1.5C, including updating the scope of its oil, gas, and thermal coal policies by the end of 2022.
It said that, as part of its efforts, it would engage with its clients to understand and review their transition plans, and added that if no plans are produced or if plans are ultimately not compatible with its own Net Zero 2050 target, it “will formally assess whether we continue to provide financing for that client”.
ShareAction filed its resolution at HSBC in February – the second time it had done so at the bank in consecutive years – calling on it to close its fossil fuel policy loopholes. That filing was prompted by the bank’s coal phase out policy published in December, which failed to meet the red lines set out by investors. Last March, HSBC’s commitment to publish that coal policy prompted ShareAction to withdraw its first proposal.
Laura Chappell, CEO at UK pension pool Brunel Pension Partnership, welcomed HSBC’s decision to “ask its major oil and gas clients to have transition plans in place by the end of the year.” “We now want to see the bank establish clear red lines and decarbonisation expectations for these, with clear, time-bound consequences for clients that fail to meet them.”
Other filers of the proposal at HSBC included AkademikerPension, La Banque Postale Asset Management, Brunel Pension Partnership, Friends Provident Foundation, Islington Pension Fund, Man Group, Merseyside Pension Fund, and Trinity College, Cambridge.